Commodity Online Rains have dampened the prospects of textiles industry as cotton production is expected to slip to 26 million bales as against 29 million bales recorded last year. Hence the Southern India Mills Association has urged the Union Government to ban exports of the commodity which has not been favourably received by the Union Government as the country is reportedly having ample stocks from previous crop.
Rains have come as a boon to coffee as it would help during harvest and will not affect the country’s output, according to G V Krishna Rau, Chairman of Coffee Board. Global coffee production during the 2009-10 crop year may dip below last year's level of 128.1 million bags due to bad weather in top three growing countries — Brazil, Vietnam and Colombia, according to the International Coffee Organisation (ICO).
The food price inflation went up marginally to 13.7% for the week ended October 31 following an increase in vegetable prices, but the arrival of winter crop is expected to bring down the prices soon. The built up inflation in the current year, or the increase in prices from the beginning of the current fiscal to end of October, has been strong at 14.4% against 7.67% in the corresponding period last year, data released on Wednesday showed.
This rise has been particularly steep in case of pulses (21.2%), vegetables (54.5%) and potatoes at (127.6%), clearly indicating that poorer segment of the population, who would spend a high proportion of their income on food, would have been hit hard by the increase in the prices
India’s total commodity futures turnover from three national exchanges and 18 regional exchanges during April-October period stood at Rs 40.05 lakh crore, up 34.09 per cent from a year ago, The total turnover during the October 16-31 fortnight rose 79.82 per cent on year to Rs 3.45 lakh crore, compared with Rs 1.92 lakh crore during the same period last year.
Gold
The Dollar Index had weakened sharply and at the same time gold prices have gained phenomenally. Prices of gold are expected to rise further and this has initiated the move by the RBI to diversify the foreign-exchange holdings. A weaker dollar could diminish the value of India’s foreign exchange reserves and hence this could lead to further accumulation of gold by the RBI. This move will help India’s central bank to hedge its downside risk on the foreign exchange reserves front. India’s gold holdings have dropped from over 20% in 1994 to just 4%. We feel that the RBI could move forward to accumulating more reserves as gold is expected to shine for the years to come.
Also, gold is traditionally considered as a safe-haven investment. This development could be positive for the gold market and the yellow metal could test new highs in the coming months. What can further add to the upside in Gold prices is the move by Russian and Chinese central banks to purchase the yellow metal. Technically after Gold prices crossed the high of $1,033/oz which was first made in March 2008, prices have continued trading higher. The metal is in a secular bull trend and the dollar index is in a secular bear trend. This further indicates that a weaker dollar could continue to support an upside in gold prices as it makes the metal look attractive for holders of other currencies. Investment demand for Gold is also expected to rise on the back of higher ETF and HNI demand. This rise in investment demand will help to compensate for the decline in consumer demand for jewelry and fabrication on the back of high Gold prices. In the coming week, we expect gold prices to trade in the range of Rs 16,370 – Rs 16,840 per 10 gram.
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Base Metals Economic data from China has come on the bullish side and is positive for base metals. But rising inventories in the case of some base metals is a cause of concern. The market continues to be torn between conflicting signals from the fundamentals side, particularly inventory developments.
China has released economic and imports data last week. A brief of that is provided below:
• China’s October copper and products imports drop 34% - Bearish for base metals as it indicates that demand for the 4th quarter could be low.
• China’s industrial production rose 16.1% from a year earlier, the most since March 2008 – Bullish for base metals but this data may not be able to provide much support today as Chinese copper imports data is bearish. But the overall impact of the rise in industrial production could be positive.
• Retail sales in China gained 16.2% in October – Gives indication that the economy is expanding.
Copper prices remain cushioned by the South American labour concerns. A long-running strike at BHP Billiton’s Spence mine in Chile is still continuing and providing an upside to prices. Workers at Antamina, a major copper mine in Peru also said that contract talks with the company had broken down and they could prepare to strike. Though Chinese imports data of copper indicates a negative side for copper, supply-related issues come to the rescue. In the coming week, we expect copper prices to trade in the range of Rs 290 – Rs 310 per kg.
Crude Oil: Last week, The US Energy Department showed a rise of 1.8 million barrels in crude oil stocks. Gasoline inventories rose 2.56 million barrels to 210.8 million, higher than a forecast drop of 350,000 barrels. There has been a sharp build-up in inventories and this factor led to the sell-off in crude oil. Fundamentals in the case of crude oil do not show a positive trend but weakness in the dollar in the near-term has supported the upside. Also data from China in the last week had helped oil prices trade higher. China’s net crude oil imports were the highest since July’s record of 19.2 million barrels. China and the US account for 33% of global oil consumption. Crude oil processing volume in China climbed to a record 33.3 million metric tons or 7.8 million barrels a day. In the coming week we expect crude oil prices to trade with a negative bias but a sharp downside could be protected on the back of weakness in the dollar. We expect crude oil prices to trade in the range of Rs 3520 – Rs 3750 in the next week.
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